Serving the required preliminary notices is the first step in protecting your lien rights. In most states, failing to properly fulfill the preliminary notice requirements automatically revoke or limit your lien rights.
Preliminary notice rules are quite complex in North Carolina. There are different types of preliminary notices and different parties have to follow different requirements.
This guide will explain all the important information that you must know about preliminary notices in North Carolina, from preparing the forms all the way to ensuring that your preliminary notices are prepared correctly.
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- Who must serve preliminary notices in North Carolina?
- When to serve the preliminary notices in North Carolina
- How to serve a North Carolina Notice to Lien Agent
- How to file a North Carolina Notice of Contract
- How to serve a North Carolina Notice of Subcontract
- Best practices when serving a North Carolina preliminary notice
Who must serve preliminary notices in North Carolina?
All construction parties in North Carolina may be required to serve a preliminary notice on a project.
Notice to Lien Agent
If a project has a lien agent, all parties, including contractors, subcontractors, and material suppliers, are required to serve a Notice to Lien Agent on the project’s lien agent. A lien agent is a title insurance company that a private company designates to handle potential mechanics liens.
Note that for building permits worth over $30,000, property owners are required by North Carolina laws to have a designated lien agent.
Notice of Contract
General contractors may file another preliminary notice known as the Notice of Contract. This notice is not obligatory but general contractors have the option of filing it in the local clerk’s office in the county where the project is located.
Note that the Notice of Contract is recorded in the county clerk’s office and posted in the project location. While this notice is not mandatory, filing a Notice of Contract obligates lower-tier contractors to serve you a Notice of Subcontract to protect their lien rights.
Notice of Subcontract
If you are a subcontractor or a material supplier to a general contractor, you may be required to serve a Notice of Subcontract if your general contractor has filed a Notice of Contract. A Notice of Subcontract is served on the general contractor to protect your rights to file a mechanics lien in case the general contractor fails to pay you in full.
When to serve the preliminary notices in North Carolina
A Notice to Lien Agent must be served on the lien agent by all parties within 15 days of your first day of work. The first day of work corresponds to the day when you first furnish labor or materials for a project.
A Notice of Contract may be served within 30 days after the building permit is issued, while a Notice of Subcontract may be served at any time before or after you have furnished labor or materials on a project.
You are, however, encouraged to serve all preliminary notices as soon as possible. For subcontractors, serving the Notice of Subcontract as soon as possible is highly advised because general contractors will only be required to notify you about the payments made once they have received your Notice of Subcontract.
What happens if you fail to serve a preliminary notice in North Carolina?
Failing to serve a Notice to Lien Agent will invalidate your right to file a mechanics lien. This implies that you may not file a valid mechanics lien to recover payment from a delinquent client.
Failing to record a Notice of Contract will not affect your lien rights. However, filing a Notice of Contract will require your subcontractors and material suppliers to serve you a Notice of Subcontract. This means that the parties who can file a mechanics lien will first have to notify you before they will be allowed to do so.
Also note that you may still file a Notice of Contract after the 30-day period. However, late filing might cause you to pay double the amount as you will not be protected from subrogation liens. If a first-tier subcontractor fails to disburse the payment to a second-tier subcontractor, you may be responsible for paying the second-tier subcontractor again.
Failing to serve a Notice of Subcontract if the general contractor has a valid Notice of Contract means you will not be allowed to file a valid mechanics lien, so make sure that you serve this notice as early as you can.
How to serve a North Carolina Notice to Lien Agent
1. Determine if the project has a lien agent
Projects whose building permits are worth $30,000 are required to have a designated lien agent. You may serve a written request on the property owner if there is important information that you want to know. Property owners are legally required to get back to you with information within 7 days of receipt of request.
2. Prepare the required information
The Notice to Lien Agent generally requires your name and the name of the party with whom you have a contract. These two pieces of information are pretty basic but you must always verify that they are spelled correctly and that you are using the complete names including the proper suffixes (e.g. Ltd. and Inc.).
3. Serve the Notice to Lien Agent on the lien agent
You may serve the Notice to Lien Agent directly on the lien agent if you know their mailing information. You may serve this notice using certified mail with return receipt requested.
How to file a North Carolina Notice of Contract
1. Prepare the Notice of Contract form
The Notice of Contract form must include the following details:
- Your name and address
- The name and address of the property owner
- A general description of the property location (street address, reference to recorded instrument, etc.)
- The date the notice is filed
The Notice of Contract must substantially be in the following format:
“NOTICE OF CONTRACT
“(1) Name and address of the Contractor:
“(2) Name and address of the owner of the real property at the time this
Notice of Contract is recorded:
“(3) General description of the real property to be improved (street
address, tax map lot and block number, reference to recorded instrument,
or any other description that reasonably identifies the real property):
“(4) Name and address of the person, firm or corporation filing this
Notice of Contract:
“Filed this the day of , .
Clerk of Superior Court”
2. File the Notice of Contract in the local county clerk’s office
The Notice of Contract must be recorded in the clerk’s office in the county where the project is located. It must be filed within 30 days of the issuance of the business permit.
Keep in mind that while filing this notice is not required, it protects you from potentially having to pay twice. After filing this notice, your subcontractors will be required to notify you with a Notice of Subcontract to protect their lien rights.
3. Post the Notice of Contract in a visible location at the project site
A copy of the recorded Notice of Contract must be posted in a visible location at the project site. This informs subcontractors that you have chosen to file a Notice of Contract and they are, therefore, mandated to serve you a Notice of Subcontract.
How to serve a North Carolina Notice of Subcontract
1. Prepare the Notice of Subcontract form
The Notice of Subcontract form must have the following pieces of information:
- Your name and address
- A general description of the property location (street address, a reference to recorded instrument, etc.)
- A general description of your contract, including the name of the party that hired you
- A general description of the services that you provide to the project
- The date the notice is served
The Notice of Subcontract must substantially be in the following format, including the required statements:
2. Serve the Notice of Subcontract on the general contractor
The Notice of Subcontract must be served on the general contractor at any time before or after you have provided services to a project. Serving this notice as early as possible is recommended because it also comes with a request to have a general contractor notify you in writing once they have released payment to the first-tier subcontractor.
There is no specific method on how you must serve this notice. Serving it using certified mail with return receipt requested should be sufficient.
Best practices when serving a North Carolina preliminary notice
1. Serve the preliminary notices as early as possible
All preliminary notice requirements must be dealt with as early as possible to ensure maximum protection of your rights.
Serving the Notice to Lien Agent as early as your first day of work ensures that your lien rights are protected right away.
Filing the Notice of Contract within the 30-day deadline will protect you from having to pay twice if a first-tier subcontractor does not release the payment to the second-tier subcontractor.
Serving the Notice of Subcontract early also requires a general contractor to notify you once they have released payment to the first-tier subcontractor. You are, therefore, made aware when payments are made and you maintain an open communication line with the higher-tier parties.
2. Keep proofs of service
It is very important that you keep mailing receipts and other important documents that prove your compliance with the notice requirements. Always make sure that you request for a return receipt if you choose to serve your notice via certified mail.
3. Verify the information written in the preliminary notice
Minor errors in spelling and formatting could be fatal to the validity of your preliminary notice. Always verify the information that you include in any of the three preliminary notices and make sure that they are accurate and properly spelled.